The 18-Month Rule
If a freeholder can’t (for any reason) send out a demand for payment within 18 months of a cost being incurred they can send a ‘Section 20b Notice’ instead of a demand for payment. This is a special kind of letter and if prepared properly and sent within 18 months then this is the only time a landlord can demand payment later than 18 months, because leaseholders have been notified within that time. Case law has indicated that costs are “incurred “when the landlord pays them or becomes liable to pay them; for instance, through receiving an invoice from a contractor or supplier.
The issuing of a s20b Notice is known as the 18-month rule because it tells leaseholders that they will be required to pay a share of incurred costs at a later date (on account) as a service charge. The serving of such a notice is to ensure that service charge payers do not receive unexpected bills long after the costs were incurred.These costs must be ‘relevant costs’ and listed at the time of writing the notice. This is because any non-chargeable areas where a leaseholder does not have to make contribution fall outside of the legislation. It is also important to note that any s20b notice which excludes certain costs which a landlord, (or agent on their behalf), intends to recharge at a later date, will also not meet the s20b requirement. So these too must be listed.
Case law has established at the Court of Appeal in the case of OM Property Management Ltd v Burr –  EWCA Civ 479 rules that costs are not “incurred” for the purposes of Section 20b of the Landlord and Tenant Act 1985 on the mere provision of a service or supply, but only when the liability has crystallised (whether on payment or presentation of an invoice). So the 18 month period runs from the date a Landlord receives an invoice rather than the date the services or works are supplied.